Chapter 8 Practice Questions
Rina Dhillon
Practice Questions
- The information in the statement of cash flows helps investors, creditors and others do all of the following except:
a. assess a company’s ability to produce future cash inflows b. judge a company’s ability to meet its obligations and pay dividends c. estimate the company’s needs for external financing d. show the inflows and outflow of income (profits) on the accrual basis
- Which of the following statements regarding the statement of cash flows is true?
a. The statement of cash flows analyses the changes in consecutive balance sheets in conjunction with the income statement b. The statement of cash flows is organised to present classifications for total cash inflows and cash outflows c. The statement of cash flows analyses only the changes in current assets and current liabilities d. The statement of cash flows is an optional financial statement
- The primary purpose of the statement of cash flows is to provide information about the:
a. financial position of the company b. profitability of the company c. investing and financing activities of the company d. cash inflows and outflows of the company
- Which of the following is not an operating activity?
a. Cash collections from credit customers b. Cash payments for operating expenses c. Cash receipts for interest earned d. Cash payments for dividends to shareholders
- Which balance sheet accounts are most affected by financing activities?
a. Current assets b. Current liabilities c. Non-current assets d. Non-current liabilities and shareholders’ equity
- Upon review of CKA statement of cash flows, the following was noted:
Cash flows from operating activities $60 000 Cash flows from investing activities (125 000) Cash flows from financing activities 115 000
From this information, the most likely explanation is that CKA is using:
a. cash from operations and selling non-current assets to pay back debt b. cash from operations and borrowing to purchase non-current assets c. profits to expand growth d. cash from investors to provide for operations
- Harry’s Pies had the following results for 30 June 2022 and 2023, respectively:
2022 2023 Cash $40 000 $50 000 Non-cash current assets 160 000 190 000 Cash flows from financing activities 210 000 Cash flows from operating activities 90 000
What was the amount of cash flows from investing activities for 2023?
a. Cash inflow of $290 000 b. Cash outflow of $290 000 c. Cash outflow of $10 000 d. Cash outflow of $30 000
- The following items were reported on the balance sheets and income statement for Custombox.com:
Accounts receivable, 30 June 2021 $250 000 Accounts receivable, 30 June 2022 225 000 Sales for financial year ended 30 June 2022 1 000 000
What amount would be reported in the operating activities section of Custombox.com’s statement of cash flows for collections from customers under the direct method, assuming that all sales are on credit?
a. $975 000 b. $1 025 000 c. $1 225 000 d. $1 250 000
- The following items were reported on the balance sheets and income statement for Tech Geeks, a service company:
Accrued liabilities, 30 June 2021 $92 000 Accrued liabilities, 30 June 2022 55 000 Operating expenses – for financial year ended 30 June 2022 200 000
What amount would be reported in the operating activities section of Tech Geeks’ statement of cash flows for payments for operating expenses under the direct method?
a. $237 000 b. $163 000 c. $200 000 d. $292 000
- During 2022, the accounts receivable balance of Big Duck Tour Business increased. On Big Duck’s statement of cash flows, we would conclude that this increase:
a. indicates that Big Duck sold more than it collected in cash during the period b. is added to net profit in the operating activities section of a statement of cash flows prepared under the indirect method c. is added to sales recognised on the income statement to determine the cash payments during the period d. is considered only when the operating activities section of a statement of cash flows is prepared under the indirect method
- How is depreciation expense recorded on the statement of cash flows if the operating activities section is prepared under the indirect method?
a. As an operating activity b. As an investing activity c. As a financing activity d. Not reported on the statement of cash flows as depreciation is a non-cash expense
- Codsil Company reported the following information for 2021 and 2022.
Salaries payable, 30 June 2021 $20 000 Salaries payable, 30 June 2022 15 000 Salaries expense—2021/22 financial year 80 000
How much cash was paid for salaries during 2021/22 financial year?
a. $60 000 b. $65 000 c. $75 000 d. $85 000
- Patagonia reported the following information for 2021 and 2022.
2021 2022 Accounts receivable $50 000 $ 65 000 Inventories 43 000 40 000 Accounts payable 29 000 39 000 Net Profit 100 000 Depreciation expense 11 000
If Patagonia uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2022?
a. $98 000 b. $139 000 c. $119 000 d. $109 000
- The current period statement of cash flows includes the flowing:
Cash balance at the beginning of the period $310 000 Cash flow from operating activities 185 000 Cash flow from investing activities (43 000) Cash flow from financing activities (97 000)
The cash balance at the end of the period is
a. $45 000 b. $635 000 c. $355 000 d. $125 000
- The following information is available from the current period financial statements:
Net Profit $150 000 Depreciation expense 28 000 Increase in accounts receivable 16 000 Decrease in accounts payable 21 000
The net cash flow from operating activities using the indirect method is:
a. $141 000 b. $173 000 c. $117 000 d. $215 000
Solutions:
- d
The cash flow statement shows the inflows and outflow of CASH, instead of income (profits) on the accrual basis.
- a
- d
- d
- d
- b
7. b
Net change in cash = $50000-40000 = 10000
Operating Activities + Investing Activities + Financing Activities = 10000
210000 + X + 90000 = 10000
X = 290000 cash outflow (i.e -$290000)
- b
Cash collected from customers = Opening A/R balance + Sales – Closing A/R balance = 250000+1000000-225000 = 1025000
- a
Cash payments for operating expenses = Opening Accured Liabilities balance + OPEX – Closing Accured Liabilities balance = 92000+200000-55000=237000
- a
- a
- d
Cash paid for salaries = Opening Salaries Payable balance + Salary expense – Closing Salaries Payable balance = 20000+80000-15000=85000
- d
Net Profit $100000
Add back: Depreciation $11000
Less: Increase in Accounts receivables $15000 (as cash not received yet)
Add: Decrease in inventory $3000 (inventory sold, cash inflow)
Add: Increase in accounts payable $10000 (cash not paid yet)
= Net cash inflow from operating activities $109000
- c
OA+IA+FA+Opening Cash Balance = Ending Cash Balance
185000-43000-97000+310000= 355000
- a
Net Profit $150000
Add back: Depreciation $28000
Less: Increase in Accounts receivables $16000 (as cash not received yet)
Less: Decrease in accounts payable $21000 (cash paid to suppliers)
= Net cash inflow from operating activities $141000